Is a Double-Dip Recession Still a Possibility?

“They still face many issues in the short run, but if Canada manages to overcome these issues, one can expect to not be bombarded on the television screen from our economy facing another recession.”

In recent months, some economists fear a double-dip recession is looming due to all the austerity measures by developed countries around the world and global market instabilities. One can only wonder if Canada will be heading towards another recession in the short run.

Fortunately, the Canadian economy is entering into what is expected to be moderate economic growth. The International Monetary Fund expects Canada’s GDP to grow by 2.75% in 2011 with private investment leading the way. Also, the I.M.F. indicated that Canada is looking bright among its rivals with proper fiscal policies and a credible return to budget surpluses beginning in fiscal year 2015.

Even though the economy is heading in the right direction, there are many issues which will have a negative impact such as stimulus package winding down, consumer spending and the housing activity cooling down.

[pullquote]They still face many issues in the short run, but if Canada manages to overcome these issues, one can expect to not be bombarded on the television screen from our economy facing another recession.[/pullquote]Also, the Canadian economy is facing negative employment prospects, since The Bank of Canada’s October Business Outlook Survey indicated that around 39% of firms intend to increase the amount employed within the next 12 months. This means that businesses are reluctant to expand their workforce. Consequently, La Chambre de Commerce du Canada expects the unemployment rate to average around 7.8%, which is still quite high by pre-recession levels.

Another issue in 2011 for the Canadian economy is how they will perform after the record third quarter deficit in 2010 as imports clearly outpaced exports. A major issue is that Canada’s major importer of its goods and services is the United States, which is continuing to experience significant turbulences. If the U.S. is sluggish, then Canada will experience less demand from them and will most likely be faced with a declined GDP level.

On the bright side, business investments are booming and it’s a major driver of economic growth. The Bank of Canada’s October Business Outlook Survey indicated that 46% of firms expect to invest more in machinery and equipment over the next 12 months. These findings show that companies will be investing in new technology, and will eventually have better technology at their disposal. This will increase productivity and efficiency which will not only represent greater output, but will make Canadian companies even more competitive in the future in the world markets.

Overall, Canada is heading into the right direction in 2011. They still face many issues in the short run, but if Canada manages to overcome these issues, one can expect to not be bombarded on the television screen from our economy facing another recession. Also, with the recent election results we can expect even more political and fiscal stability. This will make many investors and forecasters of the Canadian economy happy campers.

ARB Team
Arbitrage Magazine
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